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Estimation of the value of incremental improvements in customer satisfaction / by Robert C. Zimmerman.

by Zimmerman, Robert C.

Consumer satisfaction

Marketing -- Management

Strategic planning

68 leaves : ill. ; 29 cm.

Advisor: Dr. George Lephardt.

Committee members: Dr. William Gleason, Dr. Bruce Thompson.

Introduction -- Literature review -- Development of the customer service value model -- Sensitivity analysis -- Case studies using the customer service value model -- Conclusions and recommendations for further study -- Appendix A) Spreadsheet for case 1: small business, actual data B) Spreadsheet for case 1: small business, negative case C) Spreadsheet for case 1: small business, positive case D) Spreadsheet for case 2: mid-sized business, actual data E) Spreadsheet for case 2: mid-sized business, negative case F) Spreadsheet for case 2: mid-sized business, positive case G) Spreadsheet for case 3: large business, actual data H) Spreadsheet for case 3: large business: negative case I) Spreadsheet for case 3: large business, positive case.

Modern business management theory recognizes the importance of all types of service in acquiring and maintaining long-term relationships with customers. Many case studies of successful, customer-oriented companies have been published. While it is necessary to understand the features of a truly customer-focused company, very little attention has been paid to measuring economic benefits of such a strategy on an individual basis. Market research such as the Profit Impact of Marketing Strategy (PIMS) study indicates that companies that take extraordinary interest in their customers can expect higher net profits on average. However, individual companies that seek to improve their customer orientation have few good ways of determining the return on the additional cost and effort expanded.

For the purposes of this thesis, "service" is defined as the methods by which each of a customer's needs are satisfied. This can be done through a variety of factors including quality of product, applicability of product to specific needs, timeliness and accuracy of shipments, after-sale service, price, and interpersonal relationships between individual buyers and sellers. Many of these factors can be measured directly. However, it must be noted that the customer's level of satisfaction in how his or her needs are being met is what affects buying decisions. Emphasis on improving a specific factor may not yield the desired result if customers do not perceive a problem or care about its improvement.

Since customer perception is central to product and service improvement, many customer satisfaction surveys have been developed. Proper and frequent use of customer satisfaction surveys as measurements of customer satisfaction is critical in understanding what customers need and value. Efforts that do not affect the factors that influence a customer's buying decisions are costly and unproductive. A focused, time-bounded effort that targets the factors of service important to customers is likely to be a good investment.

Once these specific factors are identified, a company must decide on improvement goals and programs to achieve these goals. It is generally accepted that improved levels of customer satisfaction will result in improved profitability. However, there will also be diminished financial returns as expenditures for improvement increase. Without a measure of the effects of this improved satisfaction level, it is impossible for managers to determine whether an optimum satisfaction level has been reached. A model that measures the value of business gained or maintained due to customer satisfaction, and the relationship between customer satisfaction and repeat business would aid in making economical judgments about improvement initiatives. From this model, a financial statement which shows incremental value of expected revenue due to changes in customer attitudes and behaviors can be generated. This statement can be used as a management tool to evaluate cost/benefit ratios of various service enhancement programs, determine appropriate pricing strategies, rationalize staffing levels, and measure management performance. The techniques described should be applicable to all organizations that look to optimize their performance. It will also be necessary to re-evaluate customer satisfaction levels on an on-going basis, as the optimum levels of satisfaction will likely increase in the future.

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